by Michael Pollaro
To Austrians, all economic “booms” founded on monetary largesse always end in economic busts, roughly equal in size and intensity to the preceding booms. By distorting interest-rate and price signals and, as a consequence, creating malinvestments that must eventually be liquidated, monetary booms necessitateeconomic busts. This is true regardless of whatever short-term benefits the economy or financial markets appear to enjoy from this largesse. And whether that largesse originates via the creation of central-bank base money (through central-bank asset-purchase or loan programs) or via bank-issued on-demand deposit liabilities in excess of bank reserves or what Austrians call uncovered money substitutes (when said banks are making loans or purchasing assets), in the end the result is always economic busts.
Our broad and preferred money supply metric — TMS2 (True “Austrian” Money Supply) — posted another double-digit year-over-year rate increase in March, this one coming in at 14.5 percent. That makes 40 consecutive months of double-digit year-over-year rate increases. To state the obvious, we are in the midst of a monetary explosion.
To Austrians, this not only means we are looking at another economic bust but, given the size of this building monetary boom, a bust with a real possibility of surpassing anything we have seen in the recent past. Yes, even the housing boom turned bust turned Great Recession.
Building on an essay we wrote in March, here’s the why, how, and when on what we are dubbing the “Bernanke boom–bust-to-be,” named after the man most responsible for its genesis.
The Bernanke Boom–Bust-to-Be in the Context of History
Let’s begin this discussion by sizing the current installment of monetary largesse; namely, the Bernanke monetary boom, against the monetary largesse that produced the tech boom-bust at the turn of the millennium and of course the housing boom-bust turned Great Recession of 2008–09…